Upon cytokine treatment, members of the signal transducers and activators of transcription (STAT) family of proteins are phosphorylated on tyrosine and serine sites within the carboxyl-terminal region in cells. We show that in response to cytokine treatment, Stat3 is also acetylated on a single lysine residue, Lys685. Histone acetyltransferase p300-mediated Stat3 acetylation on Lys685 was reversible by type I histone deacetylase (HDAC). Use of a prostate cancer cell line (PC3) that lacks Stat3 and PC3 cells expressing wild-type Stat3 or a Stat3 mutant containing a Lys685-to-Arg substitution revealed that Lys685 acetylation was critical for Stat3 to form stable dimers required for cytokine-stimulated DNA binding and transcriptional regulation, to enhance transcription of cell growth-related genes, and to promote cell cycle progression in response to treatment with oncostatin M.